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When it comes to commercial real estate investing, don’t overlook the benefits that multi-family properties can have on your portfolio. The unique dynamics of the current economy provide a strong case for investing in multi-family units at the moment.
Particularly for those who have yet to diversify into multi-family property, the benefits of doing so are compelling for 2023.
One of the primary reasons investors like owning multi-family real estate is that it generates steady and reliable income – a welcomed opportunity during times of economic uncertainty.
Since multi-family properties have multiple rentable units, these properties tend to have higher occupancy rates than single-family homes. When the occupants of a single-family home skip paying their rent or decide to move out, your occupancy rate is 0% until you find a replacement. But, when you own a property with multiple units, there’s a much smaller likelihood of having an occupancy rate this low. Therefore, in times of tenet transition, the property will continue to generate income from the tenants that remain in your other units.
Plus, rent rates continue to rise across the country, offering continued growth in revenue for owners of multi-family properties. As of April 2023, the national median rent has increased by 17.11% since March 2021, or a yearly increase of 8.56%.
Since 2008, the rate of homeownership has been on the decline, caused by rising home prices and mortgage rates, among other reasons. This means people are now renting for longer than previous generations. In fact, a recent survey by Rent.com showed 80% of renters ages 18-34 don’t plan on transitioning to home ownership in the near future.
Thus, rental demand is slated for growth throughout the rest of 2023, supporting the case for increased investments in multi-family real estate this year.
Investing in multi-family real estate properties helps investors diversify their portfolios to better weather market volatility.
Since real estate is a tangible asset, its value doesn’t fluctuate nearly as rapidly or as frequently as stocks. Thus, investing in real estate can help investors hedge losses from their other holdings, such as stocks and bonds, and create a more well-balanced portfolio.
Given the historical returns from multi-family properties, it’s also an equity play to build wealth over the long term as the asset appreciates. So not only does this add to the stability and diversification of your portfolio, but the returns that these properties generate are also very attractive.
Some experts have even stated that these properties have averaged an annual return of 10% over the past 10 years, outperforming riskier asset classes.
There are also a number of tax benefits that multi-family property investors can take advantage of to drive down costs. Tax write-offs and deductions on multi-family properties are plentiful, meaning investors tend to pay a lower rate on their rental income than their standard income tax rates.
Multi-family real estate investors can take write-offs related to any costs incurred to operate and maintain the property, in addition to annual tax deductions on the property’s depreciation from normal wear and tear.
Established in 2002 and headquartered in Glendale, Arizona, AVANA Capital is a direct lender that serves business owners across the country through fast, flexible and reliable financing. For over two decades, we have empowered entrepreneurs in niche industries, aided job creation and supported clean energy initiatives through competitive financing. AVANA Capital is a proud member of the AVANA Family of Companies.